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Earnings season is approaching, and major technology companies such as Microsoft and Meta are under close scrutiny.
As of market close on April 22, each stock among the “Magnificent Seven” has registered a negative return in 2025. Microsoft (MSFT) and Meta Platforms (META) have experienced the least significant declines at 13% and 14.5%, respectively.
Both firms are scheduled to announce their earnings for the first quarter of 2025 on April 30. This raises the question: why might Microsoft and Meta represent attractive investment opportunities right now, despite the ongoing volatility in the stock market?
What challenges could Microsoft and Meta encounter in the near term?
One of the most significant potential obstacles for tech firms currently is the introduction of new tariff policies. Microsoft and Meta are investing heavily in artificial intelligence (AI) infrastructure—which includes components such as Nvidia chips, custom silicon engineering, and extensive data center expansions.
The complexities surrounding tariffs on certain items and raw materials could lead to increased costs for both companies as they pursue their AI initiatives. Furthermore, uncertainty about how these tariffs might affect their operations adds another layer of complexity.
This situation could compel firms to reduce expenditures in vital areas such as cloud computing, cybersecurity, and advertising, potentially leading to slower sales growth for both Microsoft and Meta. A slowdown in sales, combined with rising expenses, could negatively impact profitability.
To counteract shrinking profit margins, Microsoft and Meta might consider scaling back their AI investments. However, investors might view this negatively, as AI forms the core of both companies’ current growth narratives. Slowing such initiatives for immediate financial stability could be met with discontent by stakeholders.
Long-term prospects for Microsoft
The current sell-off in the tech sector presents a buying opportunity for high-quality stocks. Microsoft’s forward price-to-earnings (P/E) ratio, currently at 28, is slightly below its three-year average.
Despite the tightening of IT budgets, it is likely that businesses will look for cost savings in non-essential areas rather than fundamental infrastructures such as cloud computing or cybersecurity solutions.
While a standout quarter from Microsoft may not be expected next week, there is cautious optimism that its cloud service, Windows Azure, will show resilience. Coupled with its diverse ecosystem—which spans personal computing, social media through LinkedIn, gaming, and more—Microsoft appears to be fairly insulated from potential economic downturns stemming from tariffs.
Long-term outlook for Meta
At first glance, one might perceive that Meta is facing heightened pressure compared to its competitors, given its reliance on only two primary growth avenues: advertising and the metaverse. The company’s aspirations in the metaverse haven’t yet materialized into widespread adoption or profitability, and it faces stiff competition in the digital advertising space from players like Alphabet, TikTok, and Snap.
However, Meta’s price stability relative to its peers may indicate that investors harbor less concern regarding its growth outlook. The imposition of tariffs is unlikely to significantly impede Meta’s operations in the long run. Similar to Microsoft, the company might experience a temporary slowdown in revenue growth, but it is unlikely to be detrimental.
With prominent platforms like Facebook, WhatsApp, and Instagram within its portfolio, Meta is positioned to continue monetizing its vast user base—especially as advancements in AI unlock new opportunities.
Currently, Meta’s stock is trading in line with its three-year average forward P/E, suggesting that investors may not fully recognize the strides the company has made in AI as a diversification strategy over recent years.
Emphasizing long-term thinking
Investors should keep in mind that tariff regulations can evolve quickly. Additionally, even if protracted trade negotiations lead to a temporary economic slowdown, such cycles are not permanent.
As uncertainty continues to churn the market, investors are actively selling growth stocks. However, I believe that Microsoft and Meta are currently trading at reasonable valuations. This presents an opportune moment for investors to buy while prices are depressed and maintain a long-term perspective.
Source
www.fool.com